Half Yearly Report

RNS Number : 2937A

Scottish Oriental Smlr Co Tst PLC

28 March 2012

 

THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC

Interim results for the six months to 29th February 2012

(Extracted from the Interim Report)

The Board of The Scottish Oriental Smaller Companies Trust plc is pleased to announce the results for the six months to 29^th February 2012.

Financial Highlights

Performance for the six months to 29th February 2012 (Unaudited)
Net Asset Value	4.7%	MSCI AC Asia ex Japan Index (£) †	7.4%
Share Price	5.8%	MSCI AC Asia ex Japan Small Cap	1.7%
		Index (£) †
		FTSE All-Share Index (£) †	10.3%
Summary Data at 29th February 2012 (Unaudited)
Shares in issue	30,213,650	Shareholders' Funds	£195.7m
Net Asset Value per share	647.8p	Market Capitalisation	£191.9m
Share Price	635.0p	Share Price Discount to Net Asset Value	2.0%

† Total return (capital return with dividends reinvested)

Corporate Objective

The investment objective of The Scottish Oriental Smaller Companies Trust plc ("Scottish Oriental", "the Company" or "the Trust") is to achieve long-term capital growth by investing in mainly smaller Asian quoted companies with market capitalisations of below US$1,000m, or the equivalent thereof, at the time of investment. For investment purposes, the Region includes the Indian sub-continent but excludes Japan and Australasia.

This is an abridged version of Scottish Oriental's investment policy and objective. A full statement of Scottish Oriental's investment policy can be found on page 3 of the Annual Report and Accounts for the year ending 31^st August 2011 (the "Annual Report and Accounts").

Principal Risks and Uncertainties

Given the nature of its investment activities, the principal risks that Scottish Oriental faces from its financial instruments are market prices (comprising interest rate, currency and share price risks) and credit risk.  The principal risks and uncertainties have not changed since the publication of the Annual Report and Accounts. A detailed explanation of these risks and how they are managed is set out in Note 16 on pages 43-45 of the Annual Report and Accounts.  As Scottish Oriental's assets mainly comprise readily realisable securities, other than in exceptional circumstances there should be no significant liquidity risk.  Scottish Oriental's investment portfolio is exposed to market price fluctuations and currency fluctuations which are monitored by the Investment Manager.  Scottish Oriental does not invest in either fixed or floating rate securities and interest rate risk exposure is restricted to interest receivable on bank deposits or payable on bank overdraft positions which will be affected by fluctuations in interest rates.

Directors' Responsibility Statement

The Directors are responsible for preparing the half-yearly financial report in accordance with applicable law and regulations.  The Directors confirm that, to the best of their knowledge:

(a)      the condensed set of financial statements within the half-yearly financial report, prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports' gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)      the Interim Management Report includes a fair review of the information required by 4.2.7R of the Financial Services Authority's Disclosure and Transparency Rules (important events that have occurred in the first six months of the Company's financial year, together with their effect on the half yearly financial statements to 29^th February 2012 and a description of the principal risks and uncertainities for the remaining six months of the financial year). 4.2.8R requires information on related party transactions. No related party transactions have taken place during the first six months of the financial year that have materialy affected the financial position of the Company during that period and there have been no changes in the related party transactions described in the last annual report that could do so.

The half-yearly report, for the six months to 29^th February 2012, comprises the Interim Management Report, the Directors' Responsibility Statement and a condensed set of financial statements and has not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

By order of the Board

James Ferguson

Chairman

28^th March 2012

Interim Management Report

Investment Performance

In the six months ending 29th February 2012, Scottish Oriental's net asset value per share rose by

4.7 per cent to 647.8p. This compares with a sterling-adjusted increase of 7.4 per cent in the MSCI AC Asia Free (ex Japan) Index and a rise of 1.7 per cent in the MSCI AC Asia (ex Japan) Small Cap Index. The Trust's share price also increased by 5.8 per cent over the period and the discount

to net asset value was 2.0 per cent on 29th February 2012. The Trust underperformed the FTSE All-Share Index, which rose by 10.3 per cent over the six month period.

Scottish Oriental had borrowings of $32.5 million (£20.4 million), equivalent to 10.4 per cent of net asset value, as at the 29th February 2012. In addition, the Trust had cash of £22.7 million resulting in a net cash position which represented 1.2% of net assets at the end of the period. The Manager will continue to invest this money gradually once suitable long term investment opportunities have been identified.

Review

Asian stockmarkets experienced a period of volatile performance in the six months ending 29th February 2012. The market declines that took place towards the end of 2011 were offset by the strong rally which followed in January and February. The key negative remained the on-going debt crisis in Europe and the potential insolvency of its banking sector. However, this was partially offset by evidence of a modest recovery in the US economy. Unfortunately this was insufficient to avoid a slowdown in Asia's economic growth rates and a decline in expectations for corporate earnings.

Indonesia was the worst performing market in the Region, failing to participate in the recent rally owing to concerns over the impact on inflation from the forthcoming rise in subsidised fuel prices.

The Philippines achieved strong returns supported by signs that the much needed investment in the Country's infrastructure was finally taking place. Thailand also performed well owing to expectations of strong economic recovery and an increase in private sector investment following last year's devastating floods.

Asian smaller companies generally underperformed their larger counterparts with declines in a

number of markets including India and South Korea.

Outlook

The short term outlook for Asia remains uncertain as economic growth is expected to slow owing to weak external demand from Europe and the US while growth in domestic consumption is likely to be curtailed by the higher cost of living. A sustained rise in oil prices is generally bad news for Asia resulting in either higher inflation or greater Government expenditures depending on a country's policy towards fuel subsidies. Most Central Banks would be forced to tighten monetary policy in the event of a sustained rise in inflation. Higher interest rates at a time of slowing economic growth could result in lower than expected corporate earnings and a further downward revision to analysts' forecasts.

However, the longer term prospects for the Region's equity markets remain encouraging supported

by improvements in corporate governance and the emergence of a dividend culture. Scottish Oriental's investment philosophy is well suited to the current stockmarket volatility given its focus on well managed, financially sound companies.

Dividend

A dividend of 9.0p per share was paid on 10th February 2012 for the year ending 31st August 2011 (31st August 2010: 8.5p per share). It is too early to make a forecast of the distribution for the current financial year.

 

Income Statement for the six months to 29^th February 2012

	Six months to 29th February  2012 (unaudited)			Six months to 28th February  2011 (unaudited)
	Revenue £'000	Capital £'000	Total* £'000	Revenue £'000	Capital £'000	Total* £'000
Gains on investments	-	11,981	11,981	-	12,450	12,450
Income from investments	1,889	-	1,889	1,086	-	1,086
Other income	1	-	1	20	-	20
Investment management fee	(694)	(904)	(1,598)	(723)	-	(723)
Currency (losses)/gains	-	(219)	(219)	-	74	74
Other administrative expenses	(213)	-	(213)	(225)	-	(225)
Net return before finance costs and taxation	983	10,858	11,841	158	12,524	12,682
Finance costs of borrowing	(230)	-	(230)	(1)	-	(1)
Net return on ordinary activities before taxation	753	10,858	11,611	157	12,524	12,681
Tax on ordinary activities	(62)	-	(62)	(51)	-	(51)
Net return attributable to equity shareholders	691	10,858	11,549	106	12,524	12,630
Net return per ordinary share (p)	2.29	35.94	38.23	0.35	41.45	41.80

	Year ended 31st August 2011 (audited)
	Revenue £'000	Capital £'000	Total* £'000
Gains on investments	-	20,237	20,237
Income from investments	5,696	-	5,696
Other income	30	-	30
Investment management fee	(1,452)	(2,405)	(3,857)
Currency gains	-	470	470
Other administrative expenses	(461)	-	(461)
Net return before finance costs and taxation	3,813	18,302	22,115
Finance costs of borrowing	(18)	(54)	(72)
Net return on ordinary activities before taxation	3,795	18,248	22,043
Tax on ordinary activities	(352)	-	(352)
Net return attributable to equity shareholders	3,443	18,248	21,691
Net return per ordinary share (p)	11.39	60.40	71.79

* The total column of this statement is the Profit and Loss Account of the Company.

A Statement of Total Recognised Gains or Losses has not been prepared as any gains or losses are recognised in the Income Statement.

All revenue and capital items derive from continuing operations.

Balance Sheet as at 29^th February 2012

	At 29th February 2012	At 28th February 2011	At 31st August 2011
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
EQUITY INVESTMENTS
China	31,359	25,252	29,021
Hong Kong	19,889	19,135	16,691
India	2,642	2,198	2,764
Indonesia	9,640	13,365	10,147
Malaysia	18,136	15,986	15,724
Philippines	8,477	6,612	7,701
Singapore	33,039	23,626	26,843
South Korea	22,206	17,245	24,727
Sri Lanka	3,309	1,429	2,871
Taiwan	26,890	25,799	23,434
Thailand	14,572	16,700	15,691
Vietnam	3,290	2,103	1,935
Total equities	193,449	169,450	177,549
Net current assets	22,689	8,377	29,299
Total Assets less Current Liabilities	216,138	177,827	206,848
CREDITORS (due after one year)
Loan	(20,420)	-	(19,960)
Equity Shareholders' Funds	195,718	177,827	186,888
CAPITAL AND RESERVES
Ordinary share capital	7,554	7,554	7,554
Share premium account	21,337	21,337	21,337
Warrant reserve - exercised	1,319	1,319	1,319
Capital reserve	160,361	143,779	149,503
Revenue reserve	5,147	3,838	7,175
	195,718	177,827	186,888
Net asset value per share	647.78p	588.57p	618.56p

 

Cash Flow Statement for the six months to 29th February 2012

	Six months to		Six months to		Year to
	29th February 2012 (uaudited)		28th February 2011 (unaudited)		31st August 2011 (audited)
		£'000		£'000		£'000
OPERATING ACTIVITIES
Dividends received from investments		2,504		1,589		5,594
Other income		1		10		64
		2,505		1,599		5,658
Investment management fee		(681)		(710)		(1,305)
Secretarial fee		(49)		(26)		(84)
Directors' fees		(37)		(46)		(79)
Other expenses paid		(132)		(196)		(344)
Net cash inflow from operating activities		1,606		621		3,846
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Loan drawn down		-		-		19,813
Arrangement fees		(20)		-		(34)
Interest paid on borrowings		(228)		(1)		-
Net cash (outflow)/ inflow from investments and servicing of finance		(248)		(1)		19,779
TAXATION
Total tax paid		(68)		(44)		(453)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchases of investments		(24,198)		(26,383)		(58,354)
Sales of investments		20,524		24,899		56,742
Currency gains		241		74		623
Performance fee		(2,405)		-		(937)
Net cash outflow from capital expenditure and financial investment		(5,838)		(1,410)		(1,926)
EQUITY DIVIDEND PAID		(2,719)		(2,568)		(2,568)
(Decrease)/increase in cash		(7,267)		(3,402)		18,678

Reconciliation of Movements in Shareholders' Funds
For the period ended 29th February 2012
			Share Capital	Share Premium Account		Warrant Reserve Exercised	Capital Reserve	Revenue Reserve	Total
			£'000	£'000		£'000	£'000	£'000	£'000
Balance at 31st August 2011			7,554	21,337		1,319	149,503	7,175	186,888
Realised gains on investments			-	-		-	6,844	-	6,844
Currency loss			-	-		-	(219)	-	(219)
Unrealised appreciation on investments in the period			-	-		-	5,137	-	5,137
Performance fee			-	-		-	(904)	-	(904)
Income retained in the period			-	-		-	-	691	691
Dividend paid in the period			-	-		-	-	(2,719)	(2,719)
Balance at 29th February 2012			7,554	21,337		1,319	160,361	5,147	195,718

Reconciliation of Movements in Shareholders' Funds
For the year ended 31st August 2011
	Share Capital	Share Premium Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31st August 2010	7,554	21,337	1,319	131,255	6,300	167,765
Realised gains on investments	-	-	-	30,867	-	30,867
Currency gain	-	-	-	470	-	470
Unrealised depreciation on investments in the year	-	-	-	(10,630)	-	(10,630)
Performance fee	-	-	-	(2,405)	-	(2,405)
Finance costs of borrowing	-	-	-	(54)	-	(54)
Income retained in the year	-	-	-	-	3,443	3,443
Dividend paid in the year	-	-	-	-	(2,568)	(2,568)
Balance at 31st August 2011	7,554	21,337	1,319	149,503	7,175	186,888

Notes to Accounts

(1) The position as at 31^st August 2011 is an abridged version of that contained in the full accounts  for that year, which received an unqualified audit report and which have been filed with the Registrar of Companies. This interim report has been prepared under the same accounting policies adopted for the year to 31^st August 2011.

(2) Dividends

	At 29th February 2012 £'000	At 28th February 2011 £'000	At 31st August 2011 £'000
Amounts recognised as distributions in the period:
Dividend for the year ending 31st August 2011 of 9.0p (2010 - 8.5p) paid 10th February 2012	2,719	2,568	2,568

(3) Performance Fee

Under the terms of the Investment Management Agreement, an annual performance fee may be payable to the Investment Manager at the end of the year.  A detailed explanation of the performance fee computation is set out on page 21 of the Annual Report and Accounts.

Assuming no change in share price, MSCI AC Asia Free ex Japan Index Total Return and shares in issue between 29^th February and 31^st August 2012, the estimated performance fee for the year ending 31^st August 2012 would amount to £1,808,000. An amount of £904,000 has been accrued in the six months to 29^th February 2012.

·           The terms of the interim report and this announcement were approved by the Board on 28^th March 2012.

·           Copies of the Interim Report will be posted to shareholders shortly and will be available thereafter on the Company's website: www.scottishoriental.com and from the registered office at 10 St Colme Street, Edinburgh EH3 6AA.

Enquiries:

Personal Assets Trust Administration Company Limited, Edinburgh, [phone]

28^th March 2012

 

END

 

 

IR EVLFLLXFXBBL